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SEC accuses Sunwest, operator of senior living facilities, with securities fraud

March 03, 2009|Associated Press

WASHINGTON — Federal regulators on Monday accused Sunwest Management Inc., one of the nation's largest operators of assisted-living facilities, and its former chief executive with securities fraud in connection with real estate investments that turned sour.

The Securities and Exchange Commission announced the charges against Sunwest, based in Salem, Ore., and went into federal court to seek an emergency order freezing the company's assets -- a request denied by the judge, according to an attorney for the company.

The attorney indicated Sunwest hoped to work out a settlement with the regulators.

The SEC said Sunwest raised more than $300 million from 1,300 investors around the country from 2006 to 2008 by promising annual returns of around 10% and touting a track record of never missing a payment.

The money was used for down payments on about 100 retirement homes, with the rest of the financing coming from institutional lenders and banks, the SEC said in a civil lawsuit filed in federal court in Eugene, Ore.

The agency alleged that Sunwest lied to investors about its operations and concealed the risks of the property investments, exposing them to huge losses when the economic downturn and credit crisis brought about the collapse of Sunwest. At least half of the properties lost money, according to the SEC.

The company, which operates more than 200 senior housing facilities around the country that were valued at one point at $2 billion, defaulted on numerous loans after it began running out of cash last year and couldn't obtain any more credit.

The SEC also named Sunwest's former president and chief executive, Jon Harder, in its suit. Harder, who founded Sunwest in 1991, turned over control of the company to corporate turnaround consultant Clyde Hamstreet after Harder filed for Chapter 11 bankruptcy protection on Dec. 31 and later resigned as CEO.

The SEC is seeking unspecified civil fines and restitution from Sunwest, Harder and two related companies, Canyon Creek Development Inc. and Canyon Creek Financial.

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